Hold Sona Koyo Steering Sys; tgt of Rs 22: PINC Research

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Hold Sona Koyo Steering Sys; tgt of Rs 22: PINC Research

PINC Research has maintained hold rating on Sona Koyo Steering Systems with a target of Rs 22 in its October 29, 2010 research report.

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PINC Research has maintained hold rating on Sona Koyo Steering Systems with a target of Rs 22 in its October 29, 2010 research report.

"Sona Koyo Steering Systems (SONA) Q2FY11 results were inline with our estimates as growth in domestic markets helped to double profits. On a sequential basis margins remained flat at 10.3%. With a 25% growth in net sales, profits doubled to Rs 75 million as against our estimate of Rs 83 million.'

"The domestic passenger vehicle (PV) industry is going through a purple phase. Production during the quarter was up 30.6% to 0.75mn units. For Maruti, which generates 50% revenue for SONA, production volumes were up 30% to 0.3mn units. SONA domestic sales were up 25.8% YoY and 19.1% QoQ to Rs 2.4 billion. However, exports played spoilsport, declining 37% QoQ to Rs 80 million. The company managed to increase localisation levels for CEPS to 67%. Benefitting from the same and lower raw material costs, margins expanded by 60bps to 10.3%. The significant increase in topline and expansion in margins led to doubling of profits to Rs 75 million."

"We have maintained our revenue as well as margin estimates for FY11 and FY12. Our earnings estimate for FY11 and FY12 are at Rs 1.5 and Rs 1.7 respectively. The stock is currently trading at 12.1x its FY12E earnings. Considering the concerns on the business, we believe that at current price, the stock is fairly valued and reiterate our 'HOLD' rating with a target price of Rs 22 discounting FY12E earnings 13x," says PINC Research report.

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